We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is Trade Diversification?

Daniel Liden
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Trade diversification is the process by which a business, nation, or other economic entity offers a range of different products or services, as opposed to specializing in just one. The theory is that by offering a wider range of products through trade diversification, a business can appeal to more customers and, therefore, sell more products. A cosmetics company previously specializing in women's hair products that introduces an additional line of men's products, for instance, expands its customer base by providing a more diverse range of products. Larger economic entities can also benefit significantly from trade diversification. A nation with an economy that is entirely dependent on corn, for instance, may be crippled by a poor growing season, while an economy with a variety of agricultural and manufacturing sectors could more easily survive such unfavorable conditions.

Many different factors can lead to trade diversification. A business may, for instance, become quite successful with one product and use its success to launch another product under the same brand. The development of new technology can also lead to diversification, as technological advancements often allow for the development of new products. In some cases, diversification can lead a business to further success, thereby setting the foundation for further diversification.

There are many different types of trade diversification that a business or other economic entity can attempt. In concentric diversification, for example, a company introduces new products that use similar components and technology into a new commercial area — a successful furniture company that primarily provides tables and chairs for restaurants, for instance, may begin to produce office and home furniture. Likewise, in horizontal diversification, a company introduces new products or services that users of their current products and services may find useful. Additionally, lateral diversification occurs when a business attempts to introduce a new product or service that is entirely unrelated to their current customers, products, or services.

In many cases, trade diversification can be quite risky. A business must generally spend a great deal of time, money, and market research into introducing a new product or service. Also, unless the new product is clearly better than others already on the market, the business must generally have a well-known and respected brand name in order to successfully introduce something new into a competitive market.

On a larger scale, entire nations or other large economic entities could undergo trade diversification by developing new economic sectors. This is generally good because it reduces a nation's reliance on a specific economic sector. In some cases, new technology or the use of newly found natural resources may push a nation toward trade diversification. In others, the government might offer trade incentives or impose tariffs that encourage the development of certain industries, thereby leading to diversification.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Daniel Liden
By Daniel Liden
Daniel Liden, a talented writer with a passion for cutting-edge topics and data analysis, brings a unique perspective to his work. With a diverse academic background, he crafts compelling content on complex subjects, showcasing his ability to effectively communicate intricate ideas. He is skilled at understanding and connecting with target audiences, making him a valuable contributor.
Discussion Comments
By literally45 — On Jul 05, 2014

Diversification isn't just about making money. It's also about reducing risk. There are some African countries that only have one major good for trade like coffee. This means that if people stop buying coffee beans or if the price of coffee beans plummets, these countries have nothing else to fall back on.

By burcinc — On Jul 04, 2014

@turquoise-- But producing goods with a comparative advantage does not mean that an economy cannot diversify. It just means that a country shouldn't bother producing something if it's very expensive or difficult to produce it.

Countries may have a comparative advantage in many goods. So I don't think that this is a barrier to diversification at all.

By turquoise — On Jul 03, 2014

Businesses are one thing, but doesn't free trade encourage countries to produce few products?

As far as I know, trade encourages countries to produce whatever they have a comparative advantage in. This means that a country can produce a good more cheaply and more easily than all the other countries. This way, everyone produces what is cheap for them and sells it to others. All countries can get a variety of goods at lower cost this way.

But doesn't this also mean that countries are discouraged from diversifying trade?

Daniel Liden
Daniel Liden
Daniel Liden, a talented writer with a passion for cutting-edge topics and data analysis, brings a unique perspective to...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.